Argentina v. Holdouts: The Real Costs of Default and Benefits of Settlement Claudio M. Loser

Argentina v. Holdouts: The Real Costs of Default and Benefits of Settlement 
Claudio M. Loser 

Claudio M. Loser is President of Centennial Group Latin America and Visiting Senior
Fellow of the Inter-American Dialogue. He was Director of the Western Hemisphere
Department of the IMF between 1994 and 2002.1

July 3, 2014
On July 3, the most venerable of the Pan-American organizations, the Organization of American States
(OAS), met in Washington to discuss the conflict between Argentina and the "holdouts" (known in
official and popular language as “vulture funds”) with regard to the restructuring of foreign debt of
Argentina that originated from the default of 2001. The result was predictable, even in the presence of a
court ruling endorsed by the Supreme Court of the United States requiring that Argentina pay the
"holdouts" (at the same time “pari passu”) as the holders of bonds restructured in 2005 and 2010. There
was unanimity on the part of the Latin American members and the Caribbean in support of the
Argentine and an abstention by the United States. Argentina claims that it cannot fulfill the obligations
imposed by the US courts, for economic and national legal reasons.
Beyond the complex legal aspects in connection to this case, what does Argentina attain with these
actions? At the OAS, Argentina managed to get declaratory support, in addition to the endorsement
provided by the G-77 and other fora. The declaration involved no cost for other countries in the region.
If the Argentine Government was to observe the facts and not be blinded by the rhetoric, it would
notice that no other countries (excluding those that are in a state of conflict or post-conflict) are in a
situation equivalent to that of Argentina. All countries, to the extent they borrow in international
markets, are meeting their obligations within the framework of the laws that they have accepted for
their debts. In addition, they recognize the relevant rules and the competent authorities that will settle
their eventual disputes. An interesting observation relates to the fact that the ratings of the sovereign
obligations of other countries have not shown any degree of contagion, and no other major debtor is
following in the footsteps of Argentina. There are thoughtful proposals for the reform of financial
system to deal with debt difficulties and defaults, but that is relevant to the future.
What would Argentina lose if it did not negotiate with the plaintiffs withi

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